To dispel any fears that reforms might be set back under the incoming
Congress-led government, within hours of the stunning election results,
party spokesperson Ambika Soni announced publicly, “The Congress has
always held that we want reforms. But they have to have a human face.”

Of course, Soni could have claimed much more as Mrs
Sonia Gandhi herself did a day later. “The economic reforms were
initiated by the Congress, by my husband, and later by Congress
governments,” reminded the future prime minister during an interview
on the BBC. Indeed, as I document systematically in the paper,
“India in the 1980s and 1990s: A Triumph of Reforms,” the piecemeal
reforms by Rajiv Gandhi in the second half of the 1980s played a key
role in pushing the GDP growth rate to a whopping 7.6% between 1988-89
to 1990-91. Subsequently, starting in 1991, the more systematic and
comprehensive reforms by finance minister Manmohan Singh ensured that
the higher growth rate of the 1980s was sustained. Against this
background, it is unthinkable that Mrs Gandhi would reverse course.

The allegation that reforms lack a human face must be answered, however.
Admittedly, politicians seeking limelight have focused
disproportionately on the achievements in the information technology
sector, fuelling the impression that reforms have helped only a blessed
few. But this is a gross distortion of the true picture.

The biggest achievement of the reforms to date
remains the unprecedented reduction in poverty. During the past two
decades, the proportion of those living below the poverty line has been
cut by approximately half. This is in contrast to the dark days of
autarky, licence raj and state ownership when virtually no success was
achieved in bringing relief to the poor. Ever since Independence, the
goal of our policy had been to eliminate poverty but no success was
achieved until liberalisation helped push up the growth rate.

Of course, much more can be done for the poor and
that is where the Congress has been successful in connecting better with
the voters than the NDA. Despite the substantial reduction in poverty,
the absolute number of those living below the poverty line remains large
at 250 million. As the official poverty line itself is relatively
low, perhaps another 100 to 150 million people right above the poverty
line also live a life of deprivation. Hence, the task of giving a decent
living standard to 350 to 400 million Indians remains unfinished.

Part of the solution to this problem undoubtedly
lies in bringing roads, housing and jobs to rural India as the Congress
manifesto contends. But no matter how popular and attractive these
policies may seem, the ultimate long-term salvation of the poor lies in
providing them high-wage jobs which in turn requires rapid
industrialisation. Currently, 65% of India’s population depends on
farming. Unless the bulk of this population is moved to industry,
whether rural or urban, the heavy pressure on the farmland will preclude
significant improvement in the living standard of those earning their
incomes from small pieces of land or just labour.

Virtually all developing countries that have
successfully eliminated poverty and transited to middle-income status
have done so through near double-digit growth of traditional industry.
Such growth has allowed the industry to progressively draw the landless
or near-landless poor from agriculture into gainful employment and to
simultaneously reduce the pressure of population on farmland.

Reforms in India, on the other hand, have failed to
produce fast growth in industry and hence transform the economy from
predominantly agricultural to predominantly industrial. The much
celebrated information technology sector cannot absorb farm population
rapidly, both because it requires 15 years of prior education and, at
less than a million employees, has a very small base. In the past
decade, not only has Indian industry grown slowly at approximately 6%,
its pattern has also been biased in favour of such capital- and skilled-labour-intensive
sectors as auto, auto parts, telecommunications, pharmaceuticals and
drugs. Labour-intensive industries such as textiles and clothing,
footwear, toys, various household items and food processing have at best
grown at the average rate of the economy and often much slower.

The reasons for this slow and lopsided growth of
the industry are not hard to understand. At the macro level, large
fiscal deficits have starved the private economy of investment. And at
the micro level, we have made it nearly impossible for labour-intensive
sectors to operate on an economically efficient scale. Thus, despite
some progress recently, a large majority of the labour-intensive sectors
remain reserved for small-scale enterprises. Additionally, labour laws
make the setting up of large-scale enterprises unprofitable. As a
result, big industrialists and foreign companies have chosen to focus
their efforts on capital- and skilled-labour-intensive sectors that are
open to them and not subject to the tyranny of labour laws.

If India is to transform itself from a
predominantly agricultural to an industrial economy, it must immediately
open all sectors to enterprises of all size. Any protection to the small
enterprises should be given through direct financial assistance. With
the import quotas on textiles and clothing in the rich countries slated
to expire on January 1, 2005, this sector is poised for a major global
reorganisation. And it will be a pity for India to once again miss the
opportunity to capture its fair share of the global market in this key
labour-intensive sector.

But the end to the small-scale-industries
reservation will be insufficient. Unless our labour laws are reformed
simultaneously to achieve a balance between the rights and obligations
of workers, India will still miss out on the ongoing reorganisation of
many industries in terms of large-scale global production chains. It is
unthinkable that even in textiles and clothing, companies will establish
the large-scale production chains in India that are fast becoming a
commonplace in China and many other developing countries